We are wrong and will continue to be wrong on VRX, Biovail just in case we forget. This company has overtaken Royal Bank and is now the biggest on the TSX. In dollar terms it is twice as high as Nortel ever was and just as then with Nortel very few people understand what they do. It is almost as if all the sales of commodity stockes are finding their way into this stock

Technically speaking we are going straight, that is vertically, up. This is where things have to exhaust themselves. Looking at it on a semi-log scale the count moves up a notch but more importantly we are hitting the trend line. These channels tend to be uncannily accurate as can be seen on the way down as well. At a p/e of 122x this stock is trading entirely on hope. Just as with Nortel we would urge you not to participate any further.

At around $170 this looked like a sell to us. It got to $308 so obviously we were off by about 1/2. Today we again think this is a sell. There are, arguable, 5 waves into the top and now the 5th wave is actually larger than wave one and three combined which is very unusual. The stock has traded up almost vertically and even left a gap behind between $220 to $240. For comparison purposes we include the US pharma+ ETF IBB which itself is a stellar performer but no match for VRX. This is one of those situation where things are “too good to be true”, perhaps because this is the only stock in this sector in Canada, there are no alternatives, except, of course, not playing at all.

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This stock has gone from $9+ to $170 and may still add a few dollars. In our opinion this is one of the best shorts there is. First of all the EW count is clearly one of 5-waves up from that low, with the 3d of the 3d as the “extended” wave. There is alternation between 2 and 4 with 2 as an irregular flat and 4 as a zig-zag. Waves 1 and 5 are presently more or less equal which is a fairly standard phenomenon when the 3d wave is extended.  Secondly both the RSI and MACD are showing signs of fatigue.

   On the fundamental side this  company operates in the business sector of pharmaceuticals, something that is not  even remotely understood by even the most conscientious analyst and therefore vulnerable to intense levels of hype. This is a concern that people who were acquainted with the shenanigans of Biovail would certainly understand. The recent grow at any cost approach with Allergan failed but does reveal their MO. With a P/E of 104 this is an excellent choice for a short. An initial target would be about $50 down, after that possible to about $50 (top of wave 1 in an extended wave). Options are available on this stock but they are not cheap.

Gilead (GILD) has a very similar structure!

We got this one completely wrong. It keeps growing through acquisitions and the philosophy , as stated by the CEO, is to aim high if that is where you want to go. And they do as they hope to become the 5th largest pharma company in the next few years which implies that the present capitalisation will have to move from about $40 bln. to $150 bln, no mean feat by any standards. We simple do not believe it, not just because this used to be Biovail, but because of their intangible assets;

With about $23 bln. in intangibles (goodwill if you prefer) out of a total of $28 bln. in total assets this is a disaster waiting to happen. We are not sure why it got here but probable the fact that pharma has done well lately and that Canada only has one company in that sector has a lot to do with it. No doubt it will go a little higher yet but this is a momentum play that we wouldn’t want any part of. A sell.